2200: Financial Statement Accounts Flashcards
1
Q
Under IFRS, how is inventory carrying value calculated?
A
Lower of cost and net realizable value, applied on an item-by-item basis
Simpler than US GAAP LCM
2
Q
How do you calculate net realizable value?
A
Sale Price
less
Cost to Sell or Dispose
3
Q
State and define the two methods of allocating capital interest when a new partner pays a premium to join the partnership. (Pays more than valued received.)
A
Bonus or Goodwill to Existing Partners
Bonus - allocate and credit premium among existing partners’ capital accounts (credit new partner capital account for less than debit for payment)
Goodwill - recognize and allocate goodwill by crediting existing partners’ capital accounts and debiting goodwill (credit new partner capital interest equal to debit for payment)
4
Q
State and define the two methods of allocating capital interest when a new partner receives his interest at a discount. (Pays less than value received.)
A
Bonus or Goodwill to New Partner
Bonus - credit new partner for more than the debit for payment and debit the difference to existing partners’ capital accounts
Goodwill - credit new partner for more than debit for payment and debit the difference to goodwill
5
Q
How do you determine Lower of Cost or Market in valuing inventory?
A
Choose the Lower of two: “Cost” or “Market”
1. Cost is Historical Cost
2. Market is Designated Market (DM), the mid value of 3:
Market 1 - Replacement Cost
Market 2 - (Ceiling) is Selling Price less Selling Expense = Net Realizable Value (NRV)
Market 3 - (Floor) NRV less Normal Profit (NP)
6
Q
What disclosures are required regarding pension plans?
A
- Net prior service cost or credit in accumulated other comprehensive income
- Components of period pension costs
- Estimate of contributions to plan in the next fiscal year
7
Q
What are the journal entries required to write off then collect on the previously written off account under the allowance method?
A
Write Off: Debit Allow. for UC A/R (dec), Credit A/R (dec.)
Reinstate: Debit A/R (inc), Credit Allow for UC A/R (inc)
Rec Pmt: Credit A/R (dec), Debit Cash (inc)
8
Q
When is it appropriate to recognize revenue prior to the sale?
A
Only when production is the critical event and sales and cost of sales are reasonably certain. (Commodoties and percentage-of-completion for long term construction contracts)
9
Q
In converting from cash basis to accrual, how are prepaid expenses and accrued liabilities accounted for?
A
Compared to beginning of the year, overall increase (decrease) in prepaid expenses should be subtracted (added) from current year expenses and increase (decrease) in accrued liabilities should be added (subtracted).
10
Q
What is the A/R formula in respect to sales, collections, beginning a/r and ending a/r?
A
Beginning A/R + Sales - Collections* = Ending A/R
Beg A/R + Credit Sales - Collections - Accounts Written Off - Ending A/R
Estimated UC and Recoveries do not affect
*Reported as “Sales” under cash basis method
11
Q
What types of gains and losses may occur pursuant to troubled debt restructuring?
A
ordinary gains/losses resulting from the difference between fair value and book value of the assets transferred to relieve the liability
extraordinary gains/losses resulting from the difference between fair value of the assests transferred and value of liability relieved
12
Q
How is a stock option valued using the intrinsic method?
A
It is the excess of the market price over the exercise price.
(sh# x mkt pps) - (sh# x exercise pps)
13
Q
How is the difference accounted for when the sale price exceeds the par value of common stock?
A
A credit to paid-in-captial
14
Q
How is cost of goods sold calculated?
A
Beginning Inventory + Net Purchases (Purchases - Purchase Discounts + Freight In*) = Goods Available for Sale - Ending Inventory = Cost of Goods Sold
*Freight Out is not a COGS account
15
Q
What formula accounts for pension plan asset changes throughout the year?
A
Beginning Plan Assets + Contributions + Gain (- Loss) on Plan Assets - Benefits Paid = Ending Plan Assets
16
Q
What is the equation to calculate depletion per ton?
A
$ Purchase Price (Land) + Preparation Costs - Estimated Selling Price of Land after Mining / # Estimated total tons to be extracted
17
Q
What is intraperiod income tax allocation and to which items does it apply?
A
It is the distribution of income tax expense for the period to various categories of income on the Income Statement (and occasionally items of direct adjustment to Retained Earnings) in addition to operations.
Other categories include: Discontinued Operations, Extraordinary Items, Cumulative Effect of Accounting Changes, Prior-Period Adjustments, and Direct Adjustments to Capital Accounts
18
Q
How are small stock dividends defined and recorded by the issuer*?
*No JE for recipient
A
Issuance of additional shares representing less than 20-25% of shares outstanding.
DO Dec, Record @ fair value:
Debit RE
Credit Stock Div Distributable (at par value)
Credit PIC-Stock Div (for value in excess of par)
DO Pmt:
Debit Stock Div Distributable (at par value)
Credit Common Stock
19
Q
How are large stock dividends defined and recorded by the issuer*?
No JE for recipient
A
Issuance of additional shares representing more than 20-25% of shares outstanding.
DO Dec, Record @ par value:
Debit RE
Credit Stock Div Distributable (at par value)
DO Pmt:
Debit Stock Div Distributable (at par value)
Credit Common Stock
20
Q
How are partner capital balances calculated?
A
It is their net capital contribution (fair value less liabilities assumed) adjusted per goodwill or bonus method only when so defined in partnership agreement.
21
Q
What is the formula for Effective Interest Rate
A
Carrying Value x Effective Interest Rate x Time Period = Interest Earned
22
Q
How is stock with no par value but a stated value of $1 accounted for?
A
Par is stated valued.
It is valued at $1 (like $1 par) and excess of market value paid over $1 is Paid-in-Capital (like excess of par)
23
Q
What amount is booked for a contingent liability estimable by a range?
A
GAAP - if no amount within the range is better than others, the low end of the range is booked
IFRS - best estimate is discounted to present value (not sure about range)
24
Q
Are contingency gains recognizable by GAAP? IFRS?
A
GAAP - prohibited
IFRS - sometimes
25
What tax rate is used for interim income tax provision?
The effective tax rate expected to be applicable to the full year as of the date of the interim reporting.
26
What are the criteria to accrue employees' compensated absences?
1. Obligation attributable to services already rendered
2. Rights accumulate
3. Payment is probable
4. Reasonably estimable
27
Fundamentals of Cost Method?
Record/Maintain investment at Cost
Earnings are Income in the form of Dividends
Own less than 50%
No significant influence
Use Fair Value Method instead for marketable securities.
Use LCM if marketable and other-than-temporary decline
28
When should an investor include investee in Consolidated Financial Statements?
Own > 50% (parent/sub relationship) or risks and rewards of ownership of company B are primary to company A
If Consolidated Statements, include sub (B) in statements
If no CS and influence then Equity Method, no influence Fair Value (if marketable securities)/Cost
29
Fundamentals of Equity Method?
Own 20 - 50% voting stock (c/s or p/s) or Significant Influence
Recognize dividends as return of investment in investee
Recognize share of net income/loss on c/s as investor income/loss and increase/decrease of investment in investee
Eliminate intercompany g/l
Amortize difference between cost and equity aside from goodwil in investors assets
Investment - B/S single amount
Share of NI - I/S single amount
Show classify share of special items as investee unless immaterial to investor
Investment increases to qualify - apply Eq M retro
Investment decreases to disqualify - apply Cost or LCM (marketable)
Allowed to elect Fair Value option:
Cost plus Percentage of Net Income* less Dividends = Investment Balance
+/- Fair Value Adjustment*
*Recognize Percentage of Net Income +/- Fair Value Adjustment only in Net Income
30
How is Book Value per Share of Common Stock Calculated?
```
Total SHE (P/S Par + C/S Par + APIC + RE) Less Preferred Value/CS Outstanding
Preferred Value = Par or Callable Value + Liquidating Premium + Dividends in arears
```
31
Convert P/S to C/S
Preferred Stock DR (par)
APIC P/S DR (eliminate)
C/S CR (par)
APIC C/S (calculated)
32
What method of accounting is required by FASB in accounting for stock-based compensation plans?
Fair value method unless it cannot be estimated. Then Intrinsic Value where compensation cost is based on the measurement date, not the exercise date. (Excess of market @ m over exercise x # shares)
33
How are investments in debt and equity securities valued and reported?
Trading Securities at fair value w/ unrelaized g/l reported in operating income
Available for Sale Securities* - at fair value w/ unrealized holding g/l reported in OCI
Held to Maturity* (debt only) - amortize premium/discount
*Write-down and include in earnings (RE) an other than temporary impairment to an AFS or HTM
34
How is gain/loss on extinguishing debt by exchange for new debt calculated?
Net Carrying Amt of extinguised debt
(Face Amt + unamort premium/ - unamort discount less unamort issue costs)
Less Reacquistion Price (FMV of new debt including prem/disc)
Equals Gain/Loss (pretax)
35
How is employer payroll tax liability and expense calculated?
```
Liability = Employer FICA plus withholdings (Employee FICA and FIT w/h)
Expense = Employer FICA only
```
36
What is the effect of failure to accrue future period insurance payment to cover current year inventory that is sold?
Understate accrued liabilities (A/P for insurance)
Understate expense in COGS
Overstate NI and RE
37
How are holding gains reflected in current cost financial statements?
Realized (i.e. COGS, difference between historical cost and current cost for assets sold or consumed)
Unrealized (i.e. inventory, difference between historical cost and current cost of assets still on hand)
38
Accounting for freight
Freight costs paid by the buyer are not in the inventory of the seller.
Freight in costs paid by buyer are part of inventory/COGS
Freight out costs paid by seller are a selling expense (after COGS)
39
What are permitted uses for assets of a rabbi trust?
Primary use is to provide funding for deferred compensation expenses of employer.
Assets must also be specifically available to satisfy claims of general creditors in the event of employer bankruptcy.
40
What are allowable methods for valuing inventory and cost of goods sold per US GAAP? IFRS?
US GAAP:
1. LIFO
2. FIFO
3. average cost flow (WACO?)
IFRS:
FIFO and average cost allowed.
LIFO specifically disallowed.
41
Define Treasury Stock.
Previously issued and outstanding stock reacquired but not retired by an entity.
42
Describe the Cost Method in accounting for Treasury Stock
```
Single transaction concept (reacquistion and sale)
Carried at cost pending sale
Buy:
TS DR (Cost)
Cash CR
```
Sell:
Cash DR (sale price)
TS CR (@ prior reaq cost)
APIC DR CR (difference, max = balance APIC)
RE DR CR (difference remaining after APIC balance)
43
Describe the Par Value Method in accounting for Treasury Stock.
Two transactions concept (reacquistion and sale)
Reacquired as if retired - constructive retirement:
```
TS DR (par)
APIC DR (excess of par, pro rata share of account based on original issuance cost or approximate)
```
```
RE DR difference (if difference exceeds original APIC)
Cash CR (cost)
```
Sold as if previously unissued:
Cash DR
TS CR
APIC difference
44
Explain accounting for receipt of a stock dividends/splits.
Stock dividends/splits are not income to the investor. Take nothing from property of corporation. Add nothing to interests of stockholders. The only change is to the carrying value per share for the stockholder. No journal entry required for recipient.
45
Explain LIFO Reserve
LIFO Reserve is a contra inventory account. It is used when another inventory valuation method is used for internal reporting but LIFO is used for income tax reporting.
The LIFO reserve is an account carrying the requisite adjustment amount to decrease inventory value to LIFO with the increase to COGS. Higher COGS expense equates to lower taxes.
Adjust prior year LIFO reserve carrying value to equal current end of period difference between inventory value per books and per LIFO.
Cost of Goods Sold DR
LIFO Reserve CR
46
Explain Dollar Value LIFO
Approximates results of LIFO valuing layers in dollars instead of units. Requires a price-index and a base year in which DV LIFO was adopted.
47
Explain pledging of receivables.
A/R is pledged as collateral to secure a loan.
Borrower retains control, on books and collection.
Apply collections against loan.
Disclose in notes.
Not considered sold.
48
Equipment increases from 344 to 379
Accum Depr increase from 128 to 153
Includes $50,000 equipment purchase
Includes sale of equipment with cv of $9,000
Calculate year 2 Depreciation Expense
Equipment:
Beg + Equip Purchase - HC of Equip Sold = End
344 + 50 - HC = 379
HC = 15
HC - Accum D = CV
15 - Accum D = 6
Accum D = 6
Accum Depr:
Beg + Depr Exp - Accum D disposed = End
128 + DE - 6 = 153
DE = 31
49
How do you account for liability related to sales that occur evenly throughout the year?
Average exposure is 50%
July 1 is the average date.
Only 1/2 of revenue from contracts sold year one will be recognized year 1.
$0/% from 12/31 contract and $All/100% from 1/1 contract.
Total value of contracts sold less 1/2 of year one % contract revenue earned = deferred revenue as of 12/31.
50
Explain Gross Profit Method and use it to solve this:
```
BI $40
P $480
S $620
GP (Sales) 25%
INV Recovery 5
INS Reimbursement 70%
Find EI
Find Loss
```
2212
Use Gross profit Method to estimate inventory when physical inventory is impossible or impractical or to test its reasonableness
```
GAFS = 40 + 480 = 520
GP = 620 X .25 = 155
COGS = 620 - 155 = 465
EI = 520 - 465 = 55
70% (55 - 5) = 35
LOSS = 55 - 5 - 35 = 15
```
51
Convert gross profit as a percent of cost (GP Cost) to a percent of sales (GP Sales).
GP Cost = .25
GP Sales = GP Cost/1 + GP Cost
| 20% = .25/1.25
52
How do you calculate annual life insurance expense?
Premium paid less increase in cash surrender value
Insurance Exp DR (difference)
Asset - Cash Surrender Value Dr
Cash Cr
Ignore dividends, asset value already reflects
53
How are dividends and net income from investments accounted for under the Equity Method ?
Add %NI to carrying value (return on capital).
Subtract Dividends from carrying value (return of capital).
Investment = Cost + Share of earnings (NI) - Share of Dividends - Adj (after AQ inc of investee)
Investment revenue = Share of earnings (NI) - Adj (to inc of investee)
54
Explain Deferred Tax Asset
Debit balance
Future DEDUCTIBLE amount
Asset will be recovered in the future
Valuation Allowance - Contra DTA account to reduce DTA by any to all of the amount (portion not expected to be realized).
55
Explain Deferred Tax Liability
Credit balance
Future TAXABLE amount
Liability will be paid in the future
56
How are DTA's and DTL's classified?
Current/Noncurrent according to underlying asset/liability if it exists. Otherwise based on expected timing.
Singular amount. Netted to a singular DTA or DTL.
57
Construction K = 9M
```
Year 1:
Costs incurred/paid = 2M
Est Costs to complete = 6M
Progress Billings = 1.8 M
Cash Collected = 1.5M
```
Current Liability?
POC = 2/(2+6) = 25%
GP = 9 - 2 - 6 = 1
GP recog = 25% X 1 = .25
Construction In Progress = Cost + Profit:
CIP 2.25 DR
Cash/Materials 2 CR
Est Profit .25 CR
AR 1.8 DR
Contra CIP -- Billings = 1.8 CR
Net CIP = 2.25 - 1.8 = .45
(Report Asset = Cost and Profit in excess of Billings)
Cash 1.5 DR
AR 1.5 CR
(Report Asset AR Balance = .3 )
Liability exists only if Billings > CIP
58
Required pension plan disclosures.
Key elements (investment policies)
Expense components
Reconcile projected Obligation w/ fair value of Assets
Funded status
Rates of benefit measurement (discount, return on assets, compensation)
Estimate next year's contributions
NOT an "overall" description
59
Explain Group and Composite Depreciation.
Both apply s/l depreciation to an entire group of assets
Group - similar assets
Composite - dissimilar assets
C/G Avg Depr Rate % (Average:
Total Annual Depreciation
(Sum of each asset's individual s/l annual depr amt)
Divided by Total Cost of Assets
C/G Life Years:
Total Depr Base
(Total Cost of Assets less Total Salvage Value of Assets)
Divide by Total Annual Depreciation
G/C Depr:
Avg Depr Rate X G/C CV
If an asset is retired, remove its original cost from thes asset account and debit accumulated depreciation for th difference between original cost and proceeds instead of recognizing a gain or loss.
Cash DR
Accum Depr DR (CR) - difference/plug
Asset CR
60
Are employers required to accrue a liability for nonvesting accumulating rights to sick pay benefits?
No
61
Components affecting total stockholders equity.
Include Contributed Capital (C/S, P/S & APIC)
Add total RE (no discount for RE appropriations)
- Unrealized Losses/ + Unrealized Gains
(Accum Comp Inc from AFS securities)
Ignore U/R G/L on Trading Securities (already in NI)
Less T/S (cost)
62
What is the accounting for a previously unrecognized gain or loss on AFS when the asset is sold?
Remove the unrealized gain/loss (debit/credit) from ACI
| Included the now realized gain/loss in net income (credit/debit)
63
How is gross profit recognized using the installment method?
The profit is deferred revenue that is recognized as cash is collected.
UC sales x GP% = deferred revenue
Each payment is divided into two parts:
1. recovery of cost
2. recog of gross profit
64
How are dividends received by investor in excess of investee earnings subsequent to the date of (investor) investment reported under the Cost method?
As a return of investment
| Reduce the cost of the investment
65
ABC owns stock of XYZ:
P/S 20% of 10% Cumulative, 100 O/S
C/S 80%, 700 O/S
XYZ NI = 60
P/S Div: 20% x 10% x 100 = 2
C/S Earnings: 60 - (10% x 100) = 50
80% x 50 = 40
ABC share of NI per Equity Method:
2 + 40 = 42
Share of earnings is calculated after cumulative preferred dividends even if they are not declared.
Amounts are adjusted into consolidated statments (> 50%)
66
How is a correction of errors from a prior period recorded?
As an adjustment to opening balance of retained earnings net of related income tax effect.
If two years are presented, prior year is restated.
If two years are presented and error is from before those years, then opening balance of first year presented is adjusted as above.
67
Define restricted and unrestricted cash for business entities.
Unrestricted cash is the most liquid asset available for current operations and is categorized as the primary current asset.
Restricted cash is not available for current operations that is set aside for the acquisition of noncurrent assets or retirement of long term debt or placed in a foreign account with restrictions imposed on transfers.
A checking account restricted for a current payment to a fund for noncurrent use is a noncurrent asset.
68
What are the five components of pension expense and how do they affect it?
1. Service Cost - increase in PBO (projected benefit obligation) due to current period employee services rendered
Pension Exp DR (Service Cost est by employee svc)
PBO CR
2. Interest Cost - increase in PBO as a result of the passage of time
Pension Exp DR (Interest Exp)
PBO CR (closer to PV)
3. Return on Plan Assets - increase/decrease in expense by the current portion of estimated return on plan assets applied to beginning of year balance (actual return is OCI)
Pension Plan Assets DR
Pension Exp CR (decrease by est return on plant assets)
4. G/L - decrease/increase for any portion of unrealized g/l from changes to fair value of assets or PBO that may be required here instead of OCI
5. Prior Service Cost Amortization - amendments to plan benefits applied retroactively (unrecog PSC in OCI, amort of unrecog PSC in expense)
Service Cost + Interest Cost (combo) - Contributions - Interest on Contributions = Accrued Pension Cost (PBO)
69
How are bonds payable reported?
As a net payable
FV of B/P plus/less Unamortized premium/discount (total less accumulated annual amortization)
Using Effective Interest Method;
Cash DR
Bond Disc/Prem DR/CR (total to be amortized)
Bond Payable CR
```
Interest Exp (EI% x Net Value B/P) DR
Bond Disc/Prem (plug) CR/Dr (annual amortization)
Interest Payable (FV% x FV B/P) CR
```
70
Issue Bonds FV on 1/1
$500,000 @ 9% (stated)
for
$469,500 @ 10% (yield)
Find B/P per B/S on 6/30
500,000
- 469,500
= 30,500 Discount
Cash 469,500 DR
Bond Disc 30,500 DR
Bond Payable 500,000 CR
```
Interest Exp 10% x 469,500 x 6/12 = 23,475 DR
Bond Disc (plug) 975 CR
Interest Payable 9% X 500,000 x 6/12 = 22,500 CR
```
Bond Payable 500,000 CR
- Bond Disc (balance) 30,500 DR-975 CR = 29,525 DR
= 470,475 net of discount as reported on B/S
71
For retail sales (which are reported inclusive of sales tax), how do you calculate sales net of tax?
Sales tax is originally included in sales revenue.
Sales with tax/1 + tax rate
tax rate = X%
XXXX/1.0X
72
Explain deferred compensation and give examples.
Portion of employee's compensation payable in the future while employed or as retirement benefits. If benefits are for services exceeding one year, the cost must be systematically, rationally allocated over the term.
Pension, profit sharing, stock bonus, bond purchase, IRA, Keough are deferred compensation that is taxed when received per Subchapter D of IRC.
73
How are consigned goods accounted for?
They remain in the assets in inventory of the consignor (retains ownership) at cost.
They are not include in A/R with profit included per the selling price.
74
When is fair value required to be reported?
Whether recognized or not, when aggregated fair values are material and practicable to estimate, they must be disclosed.
If material but not practicable, reasons why it is not practicable and facts regarding carrying value, effective interest rate, maturity, etc.
75
If bonds are dated before issue, how is interest accumulated between the bond date and issue date accounted for?
The accrued interest is paid by the buyer at purchase (Interest Receivable?) and accounted for as Interest Payable by the seller.
Interest Expense for the seller (issuer) is only for the months since issuance. The accrued portion was received with the cash with Interest Payable attached. Interest Payable is the combined amount at issuance plus recorded amount with Interest Expense for months owed by issuer.
76
What is the accounting AFS securities
B/S at Fair Value
Unreal. Holding G/L excluded from NI and reported in OCI
For a decline (impairment) that isn't temporary, write down to fair value and include adj in Retained Earnings. (Remove from OCI?)
77
ABC has 25% investment in XYZ
ABC Current Year portion of XYZ NI = 180
ABC Current Year Dividends from XYZ = 30
All of Current Year NI will eventually be distributed as dividends.
ABC Dividends from XYZ eligible for 80% DRD
Current/Future ABC Tax Rate = 30%
Calculate DTL
```
180 (eventually distributed and taxable as dividends)
x 20% (taxable portion after DRD)
= 36 taxable portion (total)
x 30% tax rate
= 10.8 liability (total)
```
```
30 (current distribution of dividends)
x 20% (current taxable portion after DRD)
= 6 taxable portion (current)
x 30% tax rate
=1.8 liability (current)
```
DTL
10.8 total liability - 1.8 current liability = 9 deferred liability
78
How is a redemption of stock options recorded?
```
Redemption price (cost) X # redeemed
Reduction to stockholders equity
```
79
Merchandise including 40% markup on selling price
| is 40,000
40% x 40,000 = 16,000 markup (profit)
| 24,000 Inventory Cost/COGS
80
How do redemption and expiration/lapse of gift certificates affect deferred revenue?
Redemption - Decrease (recognize revenue)
| Expiration - Decrease (recognize revenue)
81
What is the effective interest rate based on for a loan restructured in a TDR?
For the creditor, it is based on the original contract rate.
For the debtor it could be all principal (no interest) going forward if carrying value exceeds new loan amount.
Otherwise the new interest rate given by the creditors new terms is used.
Debtor Gain is based on total cash with interest currently owed at TDR less amount plus interest now owed. Neither is discounted.
Creditor Loss is (discounted present value of new loan amount calculated at the original interest rate)* less current total amount owed just prior to TDR. Annual interest is calculated at the original interest rate times the PV of the new loan amount*.
82
Calculating Debtor's gains (Creditor's losses) on TDR
Debtor's gains - total future cash payments including interest (undiscounted)
1. reduce CV of debt to total undiscounted cash payments including interest
2. recognize the gain
3. recognize all future payments as principal
(Creditor's losses include the use of present values)
83
Reporting of undeclared dividends
Undeclared dividends (includes dividends in arrears on cumulative preferred stock)
Unrecorded (no liability) prior to declaration
(Dividends in arrears must be disclosed)
Dividends in arrears are deducted from net income in calculating EPS
84
How is cash deposited in a bond sinking fund recorded?
On BS as restricted assets
85
Effects of unrealized holding gains and losses on transfers to/from trading securities.
To:
Recognize immediately upon transfer.
From:
Already recognized. Do not reverse.
86
Reporting of Pension Plan Investments and participants plan benefits.
Pension plan investments are reported at fair value or per ERISA for insurance company contracts.
Participant benefits of pension plans are reported accumulated at actuarial present value.
87
How does a convertible debt security affect interest rate?
| Accounting for liability/equity?
The convertible feature has economic value so convertible debt would receive a return at a lower rate of interest than nonconvertible debt.
US GAAP - inseparable so account for soley as debt
IFRS - account for as part debt and part equity (for the increase due to the conversion feature)
88
Consignment
Third-partEE (consignEE)
takes possession to sell for the
ownER (consignOR).
89
Refinancing short-term liability
Reportable as long term if the intent (prior to FS) and ability to refinance exist (even if subsequent event).
90
Accounting for distribution of Life Insurance upon death of insured employee.
Recognized Gain on excess of Distribution over Cash Surrender value:
Cash DR
Cash Surrender Value CR (Remove asset)
Gain CR (Difference)
91
Calculate CV with Amortization of Discount or Premium
```
Discount = CV + Amortization (moving UP to FV)
Premium = CV - Amortization (moving DOWN to FV)
```
92
Investee Depreciation and the Equity Method
Investor has an Asset: Investment in Investee
Depreciation attributable to Investor's portion of investment is recorded as Accumulated Depreciation against the Investment Asset.
Depreciation Expense is already included in Net Income and recognized when the Investor recognizes their portion of Net Income
93
Calculate Year-End CV for Bond issued at Discount or Premium with interest payable every 6 months using effective interest method.
Calculate Amortization* for EACH Interest Payment and Add (Discount) or Subtract (Premium) each to/from prior CV.
Amortization is the difference between interest at stated rate per face value and yield rate per carrying value.
94
Employee attribution period
Period of an employee's service
to which that employee's expected postretirement benefit obligation is assigned
Begins at hire date or as specified by the plan
Ends at full eligibility date
95
Calculate compensation expense for granting stock options
Fair Value* of the options AT GRANT DATE amortized over the service period
*Intrinsic Value method no longer acceptable except in rare circumstances
96
Calculate value of stock rights for investor
Allocate a portion of purchase price to stock rights*
Multiply value of right/value of stock at rights issue date by the purchase price
Allocate even when rights are issued later. Proportion for allocation is based on the later issue date even though the allocation is upon the original cost.
97
Accounting for organization costs AND start up activities
Expensed as incurred
98
Ordinary annuity
If the first of X annual payments is already collected, then the carrying amount of the annuity is figured for the amount of each annual payment multiplied by the present value of an ordinary annuity for X-1 at the market interest rate.
99
Double-declining depreciation and salvage value
Salvage value is IGNORED in the calculation
EXCEPT
the asset is not depreciated below salvage value
DDB = quicker depreciation expensing, therefore lowers CV more quickly and gain more likely (as with any accelerated method like SYD)
S/L is not accelerated and more likely to produce a loss (expensing occurs more slowly and carrying value remains higher longer)
100
Market Rate/Stated Rate and Premiums/Discounts on Bonds
```
Premium = Stated Rate > Market Rate
Discount = Stated Rate < Market Rate
```
If bond's previously selling at a premium are now selling for a discount, then the market rate must have gone up from below Stated to above it.
101
Effect of acquiring T/S on SE and Book Value per Share
T/S is a contra SE account, so acquiring T/S decrease SE
If T/S acquired for less than BV, then BV/sh increases
If T/S acquired for more than BV, then BV/sh decreases
102
Cease to use l/t asset in operations
Cease Depreciation
May reclassify as held for sale and current (intend to sell soon)
CV = Net (Historical less accum depr)
103
Interest Expense
Interest Payable
(Bonds)
CV X Effective Interest Rate
| Face Value X State Interest Rate
104
Account for conversion of bonds to C/S
Bonds Payable DR
Bond Premium (Discount) DR (CR)
C/S CR (Par Value)
APIC C/S (Plug)
CV of Bonds* - Par Value C/S = APIC /CS
*(Par/Face value less unamortized discount/plus unamortized premium)
105
Timing/recording of Service Cost and effects on Pension Exp.
Service cost is recorded at the end of the year so PBO Y1 = Service Cost Y1 with no interest on PBO. Therefore, Year 2 interest on PBO is calculated on Y1 Service Cost. In contrast, funding contribution is often at the beginning of the year so plan assets are Y1 funding + Y1 interest for Y1. Y2 funding contribution is immediately added to plan assets beginning of Y2 so interest Y2 is calculated on Y1 contribution + Y1 interest + Y2 contribution.
106
Pension Asset/Liability - Balance Sheet
Pension Benefit Obligation less Plan Assets = Pension Asset/Liability
107
PBO/PAL/PA for DEFINED CONTRIBUTION plan
Unlike defined BENEFIT plan, there is NO Pension Asset/Liability, PBO or PA
Once contributed, contributor has no further control over assets and no additional obligation
108
Reporting of deferred gains/loss on 1) actual versus expected earnings of plan assets and 2) PBO actuarial changes of defined pension benefit plans
The change in Pension Expense is reported at the beginning of the following year.
Corridor - only the amount of the change in excess of 10% of the larger of the PBO or the PA is used.
The gain/loss is a Credit/Debit amortized to Pension Expense over the life of the change .
109
Calculate admission of new partner based on desired new partner percentage (no bonus or goodwill)
Current partner combined capital divided by target combined percentage for those current partners
If new partner seeks 20%, divided current combined capital by 80%.
110
3 criteria for using percentage of completion method for long term contracts
1. buyer is capable (stage gov't is assumed capable)
2. estimations are reasonable
3. sufficient evidence work can be completed as specified
If < 3, then completed contract method
111
Cost Recovery Method
NO PROFIT until costs are recovered
112
Bond Issuance Costs
Reduce Cash received by the issuer (CR)
Offset by an L/T Asset -- Bond Issuance Cost Asset Account. The Asset is expensed s/l over life of the bonds like shifting from asset to expense like depreciation expense.
113
Accounting for Receipt of a Donated Asset by a for-profit-company
```
Asset DR (fair value)
Contribution Revenue CR (equal, offsetting)
```
114
Accounting for Outgoing Donation of an Asset by a for-profit company
Contribution Expense DR (fair value)
Asset CR (book value)
Gain/Loss (plug)
115
Disclosed in FS regarding deferred taxes
temporary differences
carryforwards
NOT permanent differences
116
3 characteristics of a derivative instrument
1. underlying or notional amount.
2. little or no initial net investment.
3. term requires or permits net settlement.
117
Units of Production Depreciation and Salvage Value
USE IT
| cost less salvage value) x (units produced/total units projected
